TBI Weekly: Why US SVOD saturation matters for global production

Squid Game

US viewers have been gobbling up content at unprecedented rates over the past few years, helping to fuel rapid SVOD expansion. Richard Middleton reflects on how Stateside appetites now appear to be sated and explores what it means for the rest of the world.

It has been a sobering few weeks for streamers, with results from services such as HBO Max, Netflix and most recently Disney+ highlighting a shifting narrative for the SVOD industry and the fortunes of those supplying it with programming.

Americans have, by and large, reached a tipping point on the number of SVOD services they need in their lives. There has been a steady flow of research predicting just how many streamers the ‘typical’ US viewer believes they need, but predictions and opinion pieces now seem to be turning into colder, harder numbers.

US SVOD apathy

This has been underlined in recent weeks by WarnerMedia’s quarterly numbers, which revealed HBO Max added just 570,000 new US subscribers over the past three months.

The company, which is in the process of being merged with Discovery, also felt the full force of its deal with Amazon expiring, meaning customers can no longer access Succession commissioner HBO via the retail giant’s Amazon Channels business. And instead of going direct, many customers just didn’t bother – resulting in a net loss of 1.8 million HBO and HBO Max customers.

Succession

US apathy towards SVOD was also evident in Netflix’s latest numbers, with just 70,000 new customers in North America joining the streamer. That was despite the advent of its giant South Korean hit, Squid Games, dominating headlines across the continent.

This week, it was Disney’s turn to put a gloss on its results, which was tricky. The Mouse House reported that its Disney+ service had reached 118.1 million subscribers at the end of Q4, just 2.1 million more users than the Q3 update in August and around eight million less than had been predicted by Wall Street analysts. Shares dived 5% as a result.

It was a notable miss from Bob Chapek’s company but perhaps more so because Disney+ has been such a star performer throughout the pandemic. It was not, either, just a US-based issue: the streamer lost millions of subscribers in India via its Disney+ Hotstar service, where the disruption caused to the IPL cricket competition did not help matters.

Revenues & ramifications

Disney seems confident that this downturn will be temporary, at least outside of the US, and Chapek talked up his company’s plans to roll Disney+ into 160 countries by the end of 2022, up from 60 now.

He also spoke of the “dam breaking” for shows ordered last year and pointed to more spend on programming to join big budget series such as The Mandalorian and Loki, with the “pre-school area” a particular focus.

Indeed, content spending for almost every streamer has soared over recent years, fuelling a highly competitive landscape for producers and creatives around the world. Studio space is at a premium in numerous locations and talent is in demand as never before, forcing prices higher as the battling SVOD’s seek to keep their insatiable content machines stocked.

Loki

Yet as market watchers are now increasingly pointing out, content spends cannot rise forever. Scale is vital, but subscription revenues for streamers are by no means the same in each of the countries they operate. If you want the biggest per subscriber returns, the US predictably rules.

The average revenue per user (ARPU) of Disney+, for example, is currently $4.12 – a figure that includes the millions of subscribers paying for Disney+ Hotstar in Asia. Take those subscribers out of the equation, however, and the figure shoots up to $6.24.

It is a similar story elsewhere: Netflix subscribers in the US pay, on average, just under $15 a month for the service, while those in Asia pay an average of $9.60.

With US subscriber numbers seemingly not budging, the upshot is that to sustain or increase current content spending, streamers will either have to substantially increase their non-US subscriber bases to make up for the difference in per user revenues, or adjust what they pay for programming.

This could quite feasibly come in the form of producing in more cost-effective ways – perhaps most notably by shifting the commissioning of shows to countries where prices are more reasonable. Alternatively, there may be further expansion of the ongoing trend towards unscripted commissions, which can avoid some of scripted’s most excessive costs.

Either way, if the narrative of 2021 was largely of unbridled streamer growth and production potential, 2022 and beyond seems to be shaping up to be a year in which the industry will adapt to a more complex ecosystem.